The effect of the composition of the audit committee of a company on the quality of the annual report

Abstract:

The audit committee of an organisation plays a critical role in the quality of the annual
report, the risk management process and governance within an organisation. The annual
report of an organisation is used by numerous stakeholders including investors to make
investment decisions. The composition of the audit committee with respect to the type of
expertise and experience represented on the committee as well as individual
characteristics of the audit committee members influences the effectiveness of the audit
committee and hence the quality of the annual report and the risk management process.
The investigation conducted by the researcher included an analysis of the audit
committees of twelve South African companies across three industries which were
banking, mining and retail. In addition three Indian companies were also reviewed, one
from each industry and a comparison conducted between the South African and Indian
companies. The analysis looked at the expertise represented on the audit committee, the
diversity of the audit committee, and the functioning of the audit committee. The
researcher analysed the individual characteristics of the members of the audit committee
including the independence, remuneration, tenure and number of directorships of the
members. The outcome of this investigation suggested that the effectiveness of the audit
committee is not only dependent on the composition of the audit committee but also on the
structure of the audit committee meetings and other factors which could include
leadership.